SEOUL - Oil prices extended declines on Tuesday, sliding towards $38 on growing economic worries after US stocks slumped to a 12-year low at the previous day's close.
Wall Street shares tumbled after investors lost faith that the US government will be able to stabilise the financial system. The S&P 500 and the Dow both posted their weakest closes since 1997 as reports the government may convert its stake in Citigroup into a big common stock holding were deemed insufficient to mend the big banks.
US oil crude for April delivery fell $0.35 to $38.12 by 0159 GMT, while London Brent crude lost $0.06 to $40.93.
"The global financial crisis is still at hand, making oil prices drift lower along with other commodities," said Victor Say, an analyst at Informa Global Markets.
"The economic data is not at all rosy, and if nothing comes out of the US on plans to rescue the banks in the next couple of days, oil prices will go down, probably even below $36."
Asian stocks fell on Tuesday, with Japan's Nikkei down 2.4 percent and South Korean shares falling nearly 4 percent soon after the open.
Global energy consumption has collapsed as the financial crisis throws a raft of major economies into a recession, prompting oil prices to tumble nearly $110 since peaking in July.
Oil's decline on Tuesday was curbed by a report that OPEC's supply was likely to fall in February as members enforced a deal to cut output, increasing the group's scope to slow production further at a March 15 meeting, traders said.
The 11 members with quotas, all except Iraq, had reduced output by 3.8 percent to 25.3 million barrels per day in Febraury, according to industry consultant PetroLogistics Ltd.
Iran's local media reported that its OPEC governor had said the producer might decide to cut output again next month if crude prices fell further. Along with Iran, Venezuela and Iraq said last week that OPEC was prepared to cut production again.
Investors are eyeing US oil inventory data, which is likely to show a 1.9-million barrel increase in US crude stocks last week, according to a preliminary Reuters poll.
And later in the day the market will closely watch Federal Chairman Ben Bernanke's policy report to US Congress on new bank rescue programmes and President Obama's 2010 fiscal year budget proposal to a joint session of Congress.